The Problem with Swimming Naked

Legendary investor Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.”

This was the billionaire’s iconic way of saying that risky financial behaviors inevitably get exposed when economic conditions change dramatically. 

Unless you have been snoozing the last 6-8 months, you probably know the economy is changing. The tide, many fear, is going out. 

Take Mrs. Smith. Her 401(k)’s small cap growth fund is down 25% year to date. Understandably, she’s feeling panicky. If she came to me for advice, I’d ask a couple of questions.

One, “how old are you?” (even though it’s impolite to ask a woman her age). Two, “how much of your total 401(k) is in this small cap growth fund?” 

If she responded, “I’m 39—again—and I have about 10% of my total 401(k) in the fund,” I’d smile, and give her my standard, “Hang in there” speech. In short, “This is how small cap growth funds can behave during a down market. From what I have seen, investors like you have reaped the benefits of a long-term perspective and disciplined behavior. But this is investing, so we must remember nothing is guaranteed.”

But suppose I had a similar conversation with Mr. Jones. And what if he said, “I’m 63. And back in January a guy on the Money Channel said small cap growth funds were about to take off. So, because I don’t have enough saved for retirement, I thought that might be a way to catch up. I moved 60% of my 401(k) into that fund. Now it’s way, way down. What do you suggest?”  

Ugh…I’d have to give Mr. Jones the bad news that it’s probable he’ll need work a few more years. 

Financially speaking, he was swimming naked when the tide went out. Now, he needs to find a swim suit and get back in the water.

Here’s the truth: the tide can go out on us in a number of dangerous ways…

  • The tide can go out on you personally. That job you regard as secure becomes insecure leading to unemployment or underemployment. You get injured or sick and are unable to work. A divorce, or the death of a loved one, wreaks havoc on your finances. We can never predict such things, of course, but we can prepare.
  • The tide can go out on an entire economy. Guess what…interest rates are going up, along with inflation. We’ve heard rumblings about this for months. Now that it’s happening, the markets are behaving as if the Apocalypse has been scheduled for next Wednesday. That’s what markets do. And people who invest as if a bear market could never happen are swimming naked.
  • The tide can go out on your life cycle. The one thing we can say about old age is that it shouldn’t be a surprise. Every year when you blow out those candles, it’s a reminder that retirement, old age and (gulp!) death are creeping ever closer. Sure, you can keep pretending you’re the one with an exemption, but failing to prepare for retirement when you know old age is looming is swimming naked.

It’s human nature to think “the tide will never go out on me.” It’s also living in denial.

Retreating markets, like we’ve been experiencing, reveal the truth about us financially. Are we engaged in risky behavior…or are we appropriately “covered”? Either way, it’s a good idea going forward, to make sure you’re not swimming naked.

If you’re ready to put on that swimming suit, I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Just email me at, and I’ll send it to you right away.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

Scroll to Top
Speak with an Advisor